Individual Stocks

Individual Stocks: The Basics

What other risks are inherent to individual stock or mutual fund investing?

Many experts believe the most apparent risk of investing in an individual stock or mutual fund is market risk. Market risk occurs when the market in general does not move in the “right” direction. When this happens, there is a tendency for the majority of stocks—regardless how good—to follow in the same direction. This means that whether or not the investment is sound, with great potential, a short or long market dip will tend to move even the best of stocks down. Sector risk is similar; even if you invest in a winning sector, if the market in general declines, it may affect this sector as well. Some sectors may move less or more, given a variety of variables that influence that particular sector. Even if you pick the right stock and sector, an unexpected event that affects the stock price, value, or demand for the stock may occur, and this may negatively affect your returns.


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